Fund Linked to Tiger 21 Invested in Madoff

By Robert Frank

One of the more surprising investors on the Madoff list is the Muus Independence Fund. Muus Independence is a fund-of-funds linked to Tiger 21, the New York forum for wealthy investors.

tiger21.com

Tiger 21, as “Richistan” readers know, is a wealth peering group where people worth $10 million or more can meet regularly to give each other advice on everything from investments to family (mainly investments). The idea is to create a haven from the conflicts of Wall Street firms and banks, offering straight talk from other rich people rather than product pushing from other bankers.

Yet the Independence Fund appears to have blurred a line of independence at Tiger. Michael Sonnenfeldt, Tiger’s founder, was also the principal owner of Muus. His fund included a number of Tiger members as investors, though Mr. Sonnenfeldt wouldn’t say how many.

Mr. Sonnenfeldt says the fund was “totally independent of Tiger 21″ and that he created a Chinese wall between the two. Tiger members weren’t required to invest with Muus. While the Independence Fund collected a fee, he says the fees were waved for Tiger members to avoid an economic conflict.

“Muus didn’t derive any economic benefit from Tiger members,” he says. He added that there was no overlap between the management of the fund and the management of Tiger.

The big question though is why get involved in selling financial products to members in the first place? Especially since Tiger prides itself on a lack of financial conflicts?

Mr. Sonnenfeldt said his hope for the fund was to leverage the buying power of Tiger members. But he said he decided to shut the fund down last year since it wasn’t worth the time and trouble–in part because it couldn’t generate fees from Tiger members.

As for investing with Mr. Madoff, Mr. Sonnenfeldt says he and the Muus team did as much due diligence as they could, analyzing monthly statements and examining its strategy. He said the Madoff investment represented only 7% of the fund’s total; he declined to give a dollar figure.

“With the benefit of hindsight, after any fraud is uncovered it always seems too good to be true,” he said. “But this was such an unusual set of circumstances and he had built up such a high level of credibility with so many experienced investors vouching for him.”

In the end, Mr. Sonnenfeldt says he is proud of the fact that none of the Tiger 21 members who had invested on their own with Madoff were wiped out by the fraud. The reason: Tiger’s so-called “portfolio review”–where members closely scrutinize each other’s holdings–discourages members from putting too much of their money in one investment.

Comments (5 of 6)

WHAT??? Did he actually say with a stright face, " ... he and the Muus team did as much due diligence as they could, analyzing monthly statements and examining its strategy?"

The goddam monthly statements printed on a dot matrix printer disclosed puts and calls that did not exist as any reading of the NYT or WSJ market pages could easily confirm. What the hell was he reading, goat entrails?

8:02 am February 8, 2009

Reggie Middleton wrote :

For those that are interested, here are the stats at my blog that has about 30% in the HNW category. Since they follow strong advice, they haven't had strong drawdowns in wealth, but their peers are a totally different story:

I am surprised at that response by ML CG. There has been a dramatic decline not only in US equities, but foreign equities, domestic real estate (residential and commercial), and foreign real estate. Virtually every asset class is down dramatically.

So how could the MLCG numbers, which focus on investible assets, be flat or only slightly down? This is not credible. If this is what they report this year, I think it will cast doubt on their methodology or their bias (i.e., a wealth management outfit needs to inflate the market for its services).

5:31 pm February 6, 2009

Joe wrote :

Hi Robert,

Thanks for the reply. Always appreciated. Yes, given the brutal stock and real estate markets that does sound like wishful thinking.

3:35 pm February 6, 2009

Robert Frank wrote :

Hey Joe. An exec at Cap Gemini signaled to me that they expect their numbers to to be flat in 2008 or MAYBE down very slightly. So they're not expecting a significant decline in their data. But I have a hard time imagining that in this economy, with millionaires losing 30% of the wealth, the real population isn't down at least 10%.

About The Wealth Report

The Wealth Report is a daily blog focused on the culture and economy of the wealthy. It is written by Robert Frank, a senior writer for the Wall Street Journal and author of the newly released book “THE HIGH-BETA RICH.”